IRELAND: Joint committee of Finance, Public Expenditure and Reform Chair: Patrick Hanrohan, March 2012 Matters relating to the ELA funding and the repayment of the IBTC promissory notes.
Stephen Donnelly, the Independent TD for Wicklow and East Carlow, questions the Governor of the Central Bank, Patrick Honohan, on the issue of the Promissory Notes, March 2012.
TRANSCRIPT:
Matters relating to the ELA funding and the repayment of the IBTC promissory notes.
Joint committee of Finance, Public Expenditure and Reform Chair: Patrick Hanrohan
Stephen Donnelly, Independent TD for Wicklow and East Carlow, studied engineering at UCD and MIT and in 2008 completed a Masters’ degree in Public Administration and International Development at Harvard’s Kennedy School of Government, ‘examining, in detail, the interaction between the IMF and small states’.
Stephen Donnelly "We, the people, or IBRC (Irish Bank Resolution Corportion), owes you, the governor of the Central Bank, about 40 Billion Euro, and we, the people have promised to give IBRC about 30B of that 40B. To give them that 30B-ish, we have to borrow it from somebody, presumably at about 3.5% at a market rate. This is a bond, so we might get it at 1.5% instead of 3.5, therefore, the gain to the State is hypothetically a 2% points spread over about 30B, which would be worth about 600 Million a year.
My first question, and I understand my numbers will be slightly out, but is that broadly the mechanism of what's happening here?
The second issue is the payment of the Promissory notes is broadly 3.1 Billion a year for 10 years, and then interest rates are moved around on it, which I imagine doesn't reflect the cash needs of IBRC to pay you back the ELA. I asked the Dept of Finance, or I asked the Minister through PQ (?) and the officials got back to me in their usual obscure manner, and said its none of the peoples' business, but it seems it very much is our business. If IBRC is saying 'Hey look, we need you to give us 3.1 B Euro a year beause we owe Governor Honahan (sp?) x-amount a year, now, obviously IBRC has its own assets, and is liquidating those assets on an ongoing basis, so my second question is: Other than the debt which IBRC owes to you, as the representative of the Central Bank, this year, what is the projected cash short-fall? In other words, we don't know, and the officials at the Department of Finance refuse to tell us how much additional money IBRC needs this year.
My second questionis what is the actual ash shortfall for this year and an ideal world for the next few years, because the answer is zero, and maybe they can fully honor their Central Bank of Ireland commitments without us going and borrowing any money or issuing any bonds in the short term.
My third question is around sustainability of the debt. Its fair to say that the debt is about to reach roughly 120% of GDP, and I accept your point that is only one metric, though very important metric. And if you include the NAMA bonds of 30 Billion, and accept that the property market is still falling, that actually there may be an additional liability in general government debt to the NAMA we may be in excess of 120% in real terms, Now I spoke to one of our MEPs on Friday who said its becoming quite nauseating in Europe because the Irish keep getting congratulated on being 'the best boys and girls in class' and the image that it conjured for me is of someone holding your head under water and drowning you as they compliment you on your swimming stroke. And I wonder, could you just comment: In your opinion, is the 120%+, bearing in mind the nuances that you've mentioned, is it still sustainable in your opinion. They are my three questions. Thank you Chair. (3:42 min)
REPLY
Chair: Patrick Hanrohan: So the one that I noted in particular, the question of: What is the cash need from IBRC? How much cash do they need?
But, in fact, this is the objective of 'the plan' is to eliminate the cash need by postponing it. That's the point. So, this is supposed to be a technique for eliminating the cash need. ...so that the State will not have to become, you know, indebted to external... maybe I won't go down that road.
Stephen Donnelly: That's fine. Thank you.
Chair: Patrick Hanrohan: What was the first one though?
Stephen Donnelly: The first question, Professor Hanrohan, was around, essentially, if a bond is issued, and this quasi-sovereign debt becomes 'real' sovereign debt, is the benefit to the State, is the benefit to the people, the difference between whatever, presumably, hopefully, very low interest that we get it at, and the program lending rate presumably in and around 3.5%?
Chair: Patrick Hanrohan: Program ... What I might make clear is the program funding is there. There is a block of money set out approved. Soaking up the program funding for this purpose is what most people envisage would happen, but if this can be avoided the program funding is available to secure and ease the government's reentry into the markets. So, you can't use it twice. So, actually, its better than your saying. The debt position of course is calculated. Its not a comfortable situation.
I share your concern that we might get into a situation, as has happened before, we become too optimistic and complacent about the Irish situation. There is a lot of work has been done by successive governments to adjust the budgetary position, but more has to be done to put he government absolutely safely on-track, and restructuring in the way that I'm talking about..I shouldn't use the word 'restructuring' because it has some other implications, but making arrangements which prolong the effective maturity of the promissory note debt is part of the ingredient that makes us - puts us in a safe position and insures the sustainability of the debt and puts it beyond the sort of doubt that you want to raise about it.
Excerpt: On the week commencing Monday April 7th, the Finance Committee welcomed representatives of the four main banks in for a chat. They came in to tell members of the Oireachtas how they’re getting on with the Mortgage Arrears crisis.
We met Ulster Bank on the 9th of April. I asked about the Bank’s policy on repossessions, and whether the move to Scotland would affect customers in arrears in Ireland. I also asked about Personal Insolvency Arrangements, and whether the bank would accept a PIA that included a mortgage write-down.
